The difference between success and failure in Forex trading is very likely to depend upon which currency pairs you choose to trade each week, and not on the exact trading methods you might use to determine trade entries and exits. Each week I am going to analyze fundamentals, sentiment and technical positions in order to determine which currency pairs are most likely to produce the easiest and most profitable trading opportunities over the next week. In some cases it will be trading the trend. In other cases it will be trading support and resistance levels during more ranging markets.

Big Picture 20th March 2016

Last week I highlighted long AUD/USD as a good trade for this week, and a short set-up on the USD/JPY as something that would be worth watching out for. This worked out very well as the AUD/USD pair has risen by 0.72% over the week, and the USD/JPY pair has fallen by 2.06%.

Fundamental Analysis & Market Sentiment

Fundamental analysis is not very useful in Forex markets at the moment. Sentiment is a much stronger price driver right now.

The feature that really stands out is the weakness of the U.S. dollar. This currency is usually the key to the Forex market, and when it is the big mover, it tends to make the market really jump. The market was very skeptical that the Federal Reserve would be able to raise interest rates, even though it had proclaimed that it intends to do so. Poor Average Hourly Wage data from three weeks ago was a fundamental peg to hang this sentiment on. In this past week the Federal Reserve cut its rate hike forecasts and this confirmed the market in its negative sentiment on the U.S. Dollar.

Additionally, sentiment continued to shift this week from risk-off to risk-on, and this is producing the most convincing rally in stocks and commodities – and hence in related currencies – that has been seen in many weeks.

Although opinion polls are still showing that a British vote to exit the European Union is a definite possibility to happen in the referendum due next June, the market is not treating this as a big enough factor to halt a strong upwards move in the price of the British Pound.